Local voices

Chinese state-owned enterprises (SOEs) have undergone a dramatic transformation over the past three decades. Once a critical component of the Maoist-era “Iron Rice Bowl,” SOEs were declared a drag on the economy in the 1980s. The far-reaching reforms put in place by Deng Xiaoping and his successor, Jiang Zemin, drastically curtailed their share of the economy.

More than three decades after Deng’s reforms began, however, many say the power and influence of SOEs is on the rise. Critics allege that state-backed companies have unfair privileges, from cheap capital to monopolistic power.

Moreover, many of China’s best and brightest still aspire to stable, well-paying SOE jobs – which are these days often referred to as a xiangbobo or “sweet pastries,” rather than “iron rice bowls.” While some criticize the work environment, others have come to appreciate the stability SOEs provide in the midst of China’s dramatically shifting economy. China Economic Review spoke with six employees of large SOEs about their experiences working in the sector.

Mr. Li, a worker in Guodian Corporation’s Jianbi Power Plant:

I’ve worked at this plant for 25 years, and I plan to retire soon. The working environment here has been good. The division of work is clear and the workload is not too heavy. When I was young, working in the state-owned enterprises – the so-called “iron rice bowl” – was our best option. Everyone sought stability. SOEs would never go out of business, and they couldn’t lay anyone off because they had a social responsibility. Now SOEs are similar to private and foreign enterprises, apart from their Communist Party affiliation. I think the state should still remain in absolute control of key industries. In the power industry, for example, private enterprises are generally small-scale thermal power plants, which are less reliable. State-owned power plants use the national network, so the electricity is more secure and reliable. SOEs also have a more comprehensive system of rules and regulations; our executives have to consider public interest. For example, in 2008, the price of coal rose sharply, but policies dictated that the price of electricity could not increase. Our former party secretary thought to protect his reputation by producing as much power as locals demanded, and as a result we recorded a loss in the hundreds of millions of renminbi. In the end he was sacked and a new secretary was appointed. There’s always a conflict of interest in protecting our profits, but there are always solutions as well.

I began working at the Jiangsu tourism bureau after graduation and was assigned to Jiangsu Guoxin Real Estate in 1996. Our staff is very loyal because they are proud to be working at the largest SOE in Jiangsu. Why are people flocking to state companies? Because they all want job stability. However, we still face a shortage of talented workers. In the past, state-owned property firms focused on construction but ignored sales. Now property SOEs have shifted to a more market-oriented approach, with sales guiding all construction. That’s totally different than in the central planning era, when we didn’t worry about sales at all. But our corporate management has yet to be reformed – it is still the old SOE management model, which is less efficient. For example, you need to hold a Chinese Communist Party conference to buy land; it’s a collective decision. But the land might be bought by a competitor during the time it takes to process the layers upon layers of reports and approvals. This makes it difficult to keep up with the market, but I think the process is unlikely to change over the next decade or two. We need be in tune with state policies in some aspects, and we lag behind private companies, such as Vanke and Longfor, in terms of innovation. Frankly, our corporate guidelines are focused not on innovation, but on cost and price control. The biggest problem for SOEs is still who takes the responsibility for allocating capital. If executives do not own stake in the company, I believe they won’t take responsibility for gains or losses. However, share options do not really work in SOEs due to their huge investment base.

Mr. Wang, a marketing manager at China Telecom:

I’m thinking of switching to a foreign company. The pressure in SOEs is lower, but I have little chance of being promoted because I’m so young. Our corporate and personnel procedures are pretty formal and comprehensive. We’re a central SOE and our resources are provided by the government, so our priority is to meet political goals. But we also have a profit target assigned by SASAC. If we don’t reach it, SASAC circulates a notice of criticism. All in all, we consider both profit and politics, but politics is always the priority. I think they go hand in hand, and there is no conflict. Internally, it’s like China Telecom has two operations: one is cost-oriented, and the other is politically oriented. When we consider a project we can’t just look at the cost. For example, if the government is interested in developing a certain region by installing a fiber optic network, they will build it regardless of costs or profits. We still follow many of the old routines, but we’ve also carried out mergers, and other reforms to improve our procedures. My company started innovating two years ago because the market was getting tougher. For example, China Telecom cooperates with Apple, and as a result we have been gradually influenced by Apple’s culture.

Laura, a communications specialist at a Shanghai-based chemical group:

My colleagues are almost all in their 30s or 40s, all having climbed the ladder after years of experience. But I feel they are not very innovative, and they have some problems with being efficient or receptive to new ideas. In terms of the working environment, I think the hierarchy is too rigid. Personally, I wouldn’t want to stay at an SOE for too long. Many of my colleagues worked at foreign-funded companies in their 20s, and then moved to state companies later when they wanted to focus more on their families. They lead a relatively easy life. At SOEs, the workload is mostly piled on junior employees rather than senior employees. My company is competing in a free market, so our top priority is to be profitable. As far as I can tell, we don’t have a lot of pressure to meet political goals. That has allowed our company to carry out big reforms. Our new leader brought in some advanced management concepts and implemented aggressive reforms. He made our facilities safer and more environmentally friendly, restructured and decentralized the organization, tightened oversight to prevent corruption in our subsidiaries and overhauled our internal communication system. We are now considering making acquisitions overseas, but we are relatively inexperienced in this area. I also think that SOEs are weak on branding; we cannot even compete with small, domestic firms.

A female employee at China Ocean Shipping Agency of China COSCO:

Our work unit was formed in the 1950s and basically had a monopoly until the 1980s and 1990s. But now there are many private shipping agencies that compete with us. Thanks to our established reputation, our customers continue to see us as more reliable and trustworthy than the private sector, but our market share has still declined. The equipment in our offices is pretty worn out; it feels like a Shanghai newspaper office in the 1930s. My parents prefer that I work at an SOE because the job is stable – they think it’s very suitable for a woman. But if a better opportunity comes along in the future, I will probably quit. The workload in private enterprises is heavier, and you can take on more responsibilities and challenges. Each year my company is given an annual target, and we us
ually maintain decent growth. In the past, if we did not meet a performance target we would use money from the previous year to make up the shortfall. But now we’re supervised more closely and this is no longer an option. Last year we were unable to hit our target due to the earthquake in Japan. We had already reported figures from the previous year and there was no way to change them, so our employees had to accept wage cuts.

Mr. Wang, a technical support employee at a state-owned ship company:

I’ve been working here since I graduated in 2008. Our company builds military and civilian ships. The military ships are purchased by the government, so we don’t pursue a profit there. For the civilian ships, we do business directly with our customers, and the government doesn’t interfere. The way I see it, our company pursues profit in line with government principles, and there’s no conflict of interest. It’s hard for new employees to find good opportunities here, because important work is usually not assigned to them. They usually choose to move to the private sector if a better job comes along. Honestly, I plan to follow suit as well. But many employees who have been working here for more than six years basically will not leave. Private companies are very results-oriented; they need people who are independent and effective. My company has been doing some internal restructuring, such as merging departments. We are also encouraged to write essays on technical innovation. In the future, I hope our company can shut down some redundant departments, improve our efficiency and cut personnel. Honestly, I don’t think it is suitable for SOEs to list on stock markets, because their money belongs to the country and the public. Even if SOEs are listed, their financial statements won’t be totally transparent, and it won’t increase their efficiency.

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China Economic Review (CER) has been a dependably independent voice on trends and developments in the greater Chinese economy for a quarter century. Our coverage has won recognition from the Society of Publishers in Asia and is widely read by economists, business leaders, academics and students with an interest in one of the world’s most vibrant and complex developing markets.